Most legacy SDLT avoidance schemes were designed to exploit unintended gaps in the SDLT legislation. A common example is a scheme that turned a single-step purchase of property into a multi-step transaction. By applying different SDLT exemptions to each step, the intended result was that no SDLT was payable on the overall transaction.
This type of scheme was central to the Project Blue case, in which the taxpayer tried unsuccessfully to combine the relief for sub-sales with the relief for alternative finance. It was defeated by HMRC.
Should I agree to use an SDLT avoidance scheme?
You should think very carefully and take independent legal advice if you have been offered an SDLT avoidance scheme and are considering using it.
SDLT planning schemes which serve no genuine commercial purpose are likely to be attacked and defeated. There are a number of reasons for this, including:
- An overall negative attitude of the judges to tax schemes
- SDLT anti-avoidance legislation that has been enacted over the past several years
- General Anti-Abuse Rule or GAAR
- Requirement to disclose the use of any tax schemes to HMRC
- HMRC’s more vigorous use of the tax penalty rules
There are still some SDLT schemes being marketed, but most are technically flawed and do not work.
A good practical rule of thumb when looking at an SDLT avoidance scheme is whether you would feel comfortable explaining as a witness in an SDLT appeal against HMRC why you entered into the scheme transactions.
What types of SDLT savings opportunities are left?
The attention of tax advisers in SDLT planning is now focused on legitimate things like maximising the available statutory SDLT reliefs, applying the statutory definitions correctly and avoiding falling foul of traps in the SDLT legislation.Examples include: maximising claims for Multiple-Dwellings Relief, applying the meaning of “dwelling” properly in order to fall within the lower Table B rates of SDLT (maximum 5%), claiming the lower rates for mixed use property and avoiding mistakes when claiming relief under the 15% corporate rate for dwellings or the 3% higher rates rules for additional dwellings.